Relationship between Corruption and FDI Inflow: A Causality Test
DOI:
https://doi.org/10.32015/JIMB/2019-11-1-10Keywords:
corruption, foreign direct investment, Granger causalityAbstract
This study examines the relationship between the inflow of foreign direct investment and corruption. By using 2006 – 2015 time series data from 19 developed countries and 18 developing countries, it starts by testing the Granger causality between these two variables. It finds that causality direction goes from corruption to foreign direct investment. After making the time series data stationary, the study runs regression analysis for each country group separately. Significant and strong impact of corruption on foreign direct investment is found for each group, and the impact is even stronger for the developed countries. Data from each group could not support the hypothesis of ‘greasing the wheels of business’, which is used for justifying soft treatment of corruption in some countries. Policy implication is to stand strong against corruption in order to promote the inflow of foreign direct investment.
References
Mottaleb, K. A., and Kalirajan, K. (2010). Determinants of Foreign Direct Investment in Developing Countries: A Comparative Analysis, ASARC Working Paper 2010/13, and published in Margin: The Journal of Applied Economic Research, 4(4), pp. 369 – 404. DOI: 10.1177/097380101000400401.
Ades, A., and Di Tella, R. (1997). The New Economics of Corruption: A Survey and Some New Results, Political Studies, XLV, pp. 496-515. DOI: 10.1111/1467-9248.00093.
Aidt, T. S. (2003). Economic Analysis of Corruption: A survey, The Economic Journal, 113(491), pp. F632-F652. DOI: 10.1046/j.0013-0133.2003.00171.x.
Akpan, U. Salisu I., and Asongu, S. (2014). Determinants of Foreign Direct Investment in Fast-Growing Economies: A Study of BRICS and MINT (January 8, 2014). African Governance and Development Institute WP/14/002. DOI: 10.2139/ssrn.2493410 .
Alemu, A. M. (2012). Effects of Corruption on FDI Inflow in Asian Economies. Seoul Journal of Economics, 25(4), pp. 387-412.
Ardiyanto, F. (2012). Foreign Direct Investment and Corruption: PhD Dissertation. Colorado State University, Fort Collins, Colorado.
Belgibayeva, A. and Plekhanov, A. (2015). Does Corruption Matter for Sources of Foreign Direct Investment? EBRD Working Paper No. 176. DOI: 110.2139/ssrn.3119692.
Castro, C., and Nunes, P. (2013). Does Corruption Inhibit Foreign Direct Investment? Politica / Revista de Ciencia Politica, 51(1), pp. 89-111.
Larraín, F. B., and Tavares, J. (2004). Does Foreign Direct Investment Decrease Corruption? Cuadernos De Economia, 41(Agosto), pp. 217-230.
Mishra, A. (2004). Corruption: A Review. Dundee Discussion Papers in Economics, No. 170. University of Dundee.
Quazi, R. M. (2014). Corruption and Foreign Direct Investment in East Asia and South Asia: An econometric study. International Journal of Economics and Financial Issues, 4(2), pp. 231-242.
The World Bank. (2017). Combating Corruption. Available at: http://www.worldbank.org/en/topic/governance /brief/anti-corruption [22.4.2019].
The World Bank. (2006). The World Bank and Corruption. Available at: https://www.cfr.org/backgrounder/world-bank-and-corruption [22.4.2019].
Downloads
Published
Issue
Section
License
The authors retain rights under the Creative Commons Attribution-ShareAlike 4.0 International CC BY-SA 4.0. Authors assign copyright or license the publication rights in their articles, including abstracts, to MIP=JIBM. This enables us to ensure full copyright protection and to disseminate the article, and of course MIP=JIBM, to the widest possible readership in electronic format. Authors are themselves responsible for obtaining permission to reproduce copyright material from other sources.
